For a little reminder of what advisors are up against when it comes to educating clients on retirement dos and don’ts, SmartMoney magazine recounts some of the largest obstacles to a successful and fulfilling third act.
1. $1 Million Will Be Enough
Hardly—and don’t rely on simple retirement calculators for help. To come up with a number, SmartMoney reports calculators essentially take one figure that retirees seldom predict accurately (how much they'll spend every year) and multiply it by another (how long they'll live). Advisors and planners say the most effective calculators use dozens of variables and ask for frequent updates. But even then, anything unexpected can derail a boomer's plans.
2. You'll Spend Less When You're Older
Boomers approaching retirement are likely to run into a rule of thumb like this, from one brokerage's online calculator: "You need about 70% to 80% of your annual preretirement household income during retirement." That figure seems to reflect reality: The federal Bureau of Labor Statistics reports that in 2009 the average person in the 65-to-74 age range spent about $43,000, while the average person age 55 to 64 spent more than $52,000. Over time, the idea that spending falls in retirement has become a mantra of financial planning. No more commutes, no more kids to feed—and no more business attire.
The question, of course, is whether retirees spend less by choice—or because they don't have a better choice, financially. A deeper dive into the federal statistics shows some interesting wrinkles, according to SmartMoney. The spending categories that drop the most after age 65 include education (presumably, the kids have grown) and pensions (no more paychecks means no more payouts for 401(k)s or Social Security), but most other categories drop only slightly.